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Projects & Procurement - Ireland

Public Private Partnerships

On June 1 of this year the Minister for Finance announced the list of projects
earmarked by the government to pilot the public private partnerships (PPP) approach
in Ireland. The total capital spend is estimated to be in the order of I£600,000,000.
The list includes the following:

a new Western River Crossing in Limerick on the N7;

the Waterford By-Pass, including a new bridge over the river Suir, on the
N25;

the Second West Link Bridge on the M50; and

key elements of the Dublin Light Rail (LUAS) Project.

The government has also announced its intention to actively explore the possibilities
for a PPP in connection with the development of the Kilcock- Kinegad section
of the N4. Finally, the government has agreed to include, in the pilot programme,
projects in the education, solid waste management, and water supply sectors.
It is intended that specific projects will be earmarked in these areas following
further consultation. The minister's announcement came almost one year after
he had announced that the government had agreed to his proposal to endorse the
PPP approach, on a pilot basis. The announcement makes it clear that PPP will
be an important element in the next National Development Plan with the scale
and scope of PPP investment being considered in the context of the National
Development Plan as a whole.

It is no surprise that the government selected pilot projects within the
infrastructure sector as it had previously announced its intention to do so.
The minister's move towards the PPP approach would seem to have the clear backing
of the Irish Business and Employers Confederation (IBEC) and the Construction
Industry Federation (CIF) and other market players. Major Irish banks have already
participated in a number of UK Private Finance Initiative (PFI) projects.

Examples of projects which have to date adopted one or more elements of the
PPP approach include:

Ringsend Sewage Treatment Waste Facility;

Dublin's East and West Link Toll Roads;

Extension to Portlaoise Prison;

Construction of a high capacity Internet Link into Ireland.

There has been much debate over the past 18 months about the government's commitment
to the PPP approach. The minister's latest announcement goes some way towards
reassuring industry that the government is at least willing to test the waters
with a number of pilot projects.

Ireland's General Government Surplus

The need for infrastructural development in Ireland is unquestionable. How
the government proposes to fund that development is not, however, unresolved.
To date, the government has been able to rely on the cohesion and structural
funding which it has received from the European Union. The general government
surplus means any government could, if it decided to do so, fund a considerable
amount of infrastructural development itself. If the government were to adopt
this approach then the future for PPP in Ireland (at least in the short term)
would be questionable. However, there may be good reasons why the government
may not wish to fund (at least entirely), infrastructural development itself.
The government may, for example, wish to employ an element of the surpluses
in the repayment of part of the national debt and it may also wish to build
up reserves for a future down turn in the economy. Labour unrest amongst public
sector workers and related demands for higher pay may also place a strain on
the surplus. European Monetary Union (EMU) restrictions on the manner in which
the government can raise finance also means that the government needs to look
at alternative means of financing public infrastructure. The Minister for Finance's
announcement is a clear signal that the private sector does potentially have
a role to play in the design, building, financing and operation of roads, bridges
and so on. Quite how significant that role will be is difficult to predict at
this stage.

Legal and other Constraints

Although there are a number of legal obstacles to a successful roll-out of
the PPP approach none of them could be categorized as being insurmountable.
This of course assumes that the government is wholeheartedly committed to the
PPP process. The following issues do, however, need to be considered:

Although there is no constitutional impediment to the government embarking
upon on a PPP programme, existing legislation does not (for the most part)
facilitate such a programme. The statutory bodies currently entrusted with
municipal and state functions do not have the requisite power and authority
to participate in PPP structured arrangements. Before embarking on such projects,
the government will need to conduct a legal audit of all such statutory bodies
in order to determine whether they have the requisition authority to enter
into PPP arrangements. Legislation will undoubtedly be required to address
this general lack of power. One exception is the Roads Act, 1993. Pursuant
to this legislation the government established the National Roads Authority
as the governing authority for all national roads in the country. The legislation
gives the authority power to enter into arrangements with private sector bodies
to procure the design, construction and operation of roads services. It also
empowered the authority to introduce tolling for roads, either directly or
through third parties on its behalf.

The Roads Act 1993 further facilitates PPP by providing that the authority
does not need to obtain planning permission. However, the minister with the
authority to approve a road scheme must arrange a public local enquiry into
the scheme prior to its approval and the National Roads Authority must submit
an environmental impact study. A similar approach was adopted in the Transport
(Dublin Light Rail) Act 1996. The exclusion of the light rail project and
the road projects from the planning process is an attempt to avoid long delays.
But the exclusion has attracted criticism and the desired objective of elimination
of delays may not be deliverable. Given the potential for long-term local
disruption and the potentially adverse environmental consequences of the projects,
the number of objections is likely to be significant. As a result, the public
enquiries may take considerably longer than envisaged.

Where sensitive projects do not benefit from the disapplication of the planning
requirements then the impact of having to follow the planning procedures will
be considerably more pronounced. This will have knock-on effects when it comes
to stimulating interest from contractors, banks and the like in the projects. Historically,
obtaining planning approval has proven to be a difficult and protracted matter.
One would therefore anticipate that the government will encounter strong resistance
to any efforts to pass planning risk to the private sector.

There is a considerable degree of uncertainty surrounding the applicability
of the European Union (EU) public procurement rules to PPP. This has arisen
because the relevant EU directives were not drafted with PPP in mind. The
European Commission has acknowledged this uncertainty. The impact of the Irish
Competition Acts will also need to be considered in the context of each project.

Lack of standard documentation is often cited as an impediment to the successful
implementation of a cost effective PPP programme. To date there is no standard
documentation in Ireland although this is to be expected bearing in mind that
PPP is still in its infancy in this jurisdiction. It is unlikely that any
standard documentation will be produced prior to the test projects. In the
UK the Treasury PFI Task Force have introduced a task force guidance on project
agreements.

Careful consideration will need to be given to the issues surrounding the
transfer of employees from the public to private sectors. It is likely that
trade unions will have significant difficulty with any PPP project which may
result in loss of jobs. Employees and trade unions may be able to take some
comfort from the protections afforded by the EU Directive on the Transfer
of Undertakings, Protection of Employment (TUPE) (Council Directive 99/187/EEC
of 14/2/1977). While the primary purpose of the directive is to safeguard
the rights of employees in the event of a change of employer, the directive
does not prevent dismissals which occur as a consequence of economic, technical
or organizational reasons entailing changes in the work force. It is worth
noting that TUPE requires the transferor and transferee entities to inform
and enter into consultation with the representatives of trade unions or employees
affected by a transfer of business. Recognition of trade unions by successful
consortia will be an important pre-requisite to the successful implementation
of any project involving the transfer of public sector employees.

PPP Project Unit

Earlier in 1999 a PPP Unit was established within the Department of Environment
and Local Government (the 'Department'). The purpose of the unit (which is headed
by Eddie Lewis), is not to take forward individual PPP projects but to identify
and progress PPP projects in general. The unit will develop sectoral models,
provide information and assistance to interested parties including public sector
bodies such as local authorities and private sector bodies. The unit will formulate
policy on issues such as documentation and risk and this will be directed to
local authorities. The sectors which are within the responsibility of the Department
include water and waste water, roads, solid waste and housing.

Conclusions

There appears to be clear political support for a PPP programme in Ireland.
The minister's recent announcement is clear evidence of this. However, this
political enthusiasm is somewhat difficult to reconcile with the fact that the
Exchequer is currently sitting on a significant cash surplus. All the indications
are, though, that the government is on the brink of embarking on a number of
pilot projects.

For further information on this topic please contact Michael O'Connor at
Matheson Ormsby Prentice by telephone (+353 1 619 9000) or by fax (+353 1 619
9010) or by e-mail (moc@mop.ie)
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